Recently, the federal government enacted the Corporate Transparency Act, which is designed to combat financial crimes committed by small business owners. This Act requires certain business entities to file “beneficial ownership information reports” with the federal Financial Crimes Enforcement Network (FinCEN). (FinCen is part of the United States Department of Treasury). These reports require disclosure of the “beneficial owner information” (BOI) of the entity’s “beneficial owners”.
An individual is a “beneficial owner” if the individual “directly or indirectly” owns or controls at least 25% of the ownership interests (voting or non-voting) of a reporting company. A “beneficial owner” is also an individual who “directly or indirectly” exercises substantial control over the reporting company by serving as a senior officer, with authority to appoint or remove any senior officer or a majority of the board, or having substantial influence over important business decisions by the company. An individual can exercise “substantial control” by acting as a trustee or other fiduciary under a trust or similar arrangement.
The BOI reports must provide FinCEN with the full legal name, date of birth, current residential street address, and identification. Entities that are required to file the reports include corporations, limited liability companies, limited liability partnerships, limited partnerships, and statutory business trusts. Essentially, any type of entity that files with a state secretary of state for formation is required to report.
If a business has more than 20 employees, has an operating presence at a physical office in the U.S., and had at least $5,000,000 in revenut in the prior tax year, the business is exempt from filing. Other exempt entities include tax-exempt entities, subsidiary entities, certain inactive entity formed before January 1, 2020, and entities that are in an already-regulated industry (banking, insurance, securities, etc.).
If your business was formed prior to January 1, 2024, and is required to report, the business will have until January 1, 2025, to file its initial FinCEN report. Entities formed after January 1, 2024, have 90 days from the date of formation to file their report(s). Anytime BOI information changes, an updating report must be filed. Willful violations of the reporting requirements can result in civil penalties of up to $500 per day, up to two years imprisonment, and a fine of up to $10,000. The penalties can be imposed against the reporting company and against any individual required to report.
BOI reports must be filed at fincen.gov/boi. There is no fee to file the report. A brochure with additional information is located at this site page, as well as additional information about filing. Federal law protects reported BOI and it will not be subject to disclosure in any context.
If your business entity is required to report, the only way to avoid the possible penalties for not reporting is to dissolve the business entity. If you your entity is required to file, its important that it do so in a timely manner. The attorneys at Allen Wellman Harvey Keyes Cooley, LLP, regularly assist clients with FinCEN compliance advice and report filings.
